South Africa: Rise of a ‘new right’? PART ONE

2016-09-08 13:32

Frans Cronje

Notes for a briefing to the Atlantic Council in Washington DC on 1 September 2016.

PART ONE OF THREE

The topic I have come to address is the future of South Africa’s politics and the prospects for its economy. I will sketch two scenarios – one of which will be firmly in evidence within the next 12-24 months. It is useful to understand some context.

Real Gross Domestic Product (GDP) per head peaked in South Africa in 1981 at just over R50, 000 per capita – a function of the high growth rates the country had sustained throughout the 1950s and 1960s and into the increasingly politically volatile 1970s. By the 1980s, however, despite a record high gold price at a time when South Africa was the world’s biggest gold producer, the contradictions upon which the apartheid system rested – a growing economy and rising living standards matched with the political exclusion of a majority of the population – began to unravel. The political consequences were best measured in the economy.

The GDP growth pattern of the 1980s was highly unstable. Positive growth of approximately 5% of GDP in 1981 was followed by negative growth in 1982 and 1983, only to be followed by positive growth of between 4% and 5% of GDP in 1984. South Africa spent 40% of the 1980s in an environment where growth rates were on or below 0% of GDP. In real terms, South Africans spent the 1980s becoming poorer. This pattern continued into the 1990s, with the years 1991, 1992 and 1993 all recording negative economic growth rates. The rate of gross domestic savings to GDP hit all-time lows. Interest rates maintained levels of around 20%. The level of public debt to GDP hit record highs. This period of economic weakness was central in forcing the transition to democracy.

Far from being a peaceful political transition, as much of the ‘rainbow nation’ mythology about South Africa suggests, more than 20,000 people lost their lives in political faction fighting between mainly black political rivals during the last decade of apartheid rule. My colleague, Dr Anthea Jeffery, notes that some 5 500 of these deaths occurred between 1984 and 1989. Three times as many deaths took place during the years of negotiation from 1990 to 1994 when, as she explains, “The door to democracy had already been thrown open and there was no need to batter it down”.

South Africa’s transition to democracy was a brutal and violent era characterised by extraordinary political ruthlessness. This propensity for ruthlessness, which we believe still resides within South Africa’s politics, is the first of two insights around which this analysis will suggest where South Africa may now be headed.

The democratic elections of 1994 proceeded fairly peacefully, if chaotically, and the result gave the African National Congress (ANC), the party of Nelson Mandela, a national majority of close to 63%. Its black political rivals in the Black Consciousness Movement and the Inkatha Freedom Party never recovered from the violence of the 1980s and early 1990s and either threw in their lot with the ANC or drifted into irrelevance.

The white liberals, of the Progressive Federal Party and later Democratic Party (the nucleus of today’s Democratic Alliance), which had staunchly opposed apartheid, had not been exposed to the same violence as was directed at the ANC’s black political rivals as it was feared this might turn European and American opinion against the ANC. In any event, popular support levels for the white liberals were very low and they drew less than 2% of the vote in 1994.

No rival

The ANC therefore assumed power in 1994 in the absence of any obvious or credible political rival.

It immediately set about facing up to the economic wreckage it had inherited from the apartheid era. It was here, in its initial economic policies, that it had its greatest successes. GDP growth rates recovered to average over 3% between 1994 and 2007. For four of those years, between 2004 and 2007, growth rates averaged upward of 5% of GDP. Interest rates were cut in half, further supporting the growth recovery. Public debt levels were cut in half and the savings on the government’s interest bill went much of the way to financing what would become the most expansive social welfare programme of any emerging market.

Real per capita GDP resumed its upward trajectory and in 2006 exceeded, for the first time, its previous peak of 1981.

Improving economic conditions allowed for a commensurate improvement in living standards.

The number of South Africans with a job roughly doubled between 1994 and 2007. The number of families in formal houses more than doubled. For every shack newly erected in the country, more than ten formal houses were being built. Water and electricity rollout into poor communities demonstrated equally impressive numbers. More than a thousand households were being connected to electricity daily. The black middle class grew to rival the size of the former white middle class (although as a first generation middle class it remains highly vulnerable to economic setbacks).

Black South Africans became the majority of buyers of homes in what had formerly been white suburbia. The proportion of children under the age of five who were malnourished fell from roughly 14% to between 4% and 5% of children in that age bracket.

More examples could be provided, but the point is made. Life was getting better in South Africa and real progress was being made in escaping its apartheid past. Of course there are many analysts in South Africa who deny this fact but, in my experience, they mostly sit on either the extreme left of the political spectrum and resent the pragmatic conservatism inherent in the early economic policy thinking of the ANC, or they sit on the fringes of the white far-right and resent the ANC in principle – perhaps more so for the fact that it was able to right the economy.

It has seldom been fully acknowledged what the ANC achieved in its first decade and a half in government – while it spoke the language of revolution, many of its actual economic policies were sensible. This former propensity for some sound economics is the second of the two insights around which this analysis will suggest where South Africa may now be headed (the first, you will recall, is the ANC’s capacity for ruthlessness).

The economic and social progress was essential to consolidating the ANC’s popular mandate – and for many years after 1994 it did not seem to matter much that no credible political rival existed. Good polling research conducted for South Africa’s presidency showed that popular confidence in the future of the country had reached levels approaching 70% between 2004 and 2007. By the time of the national elections of 2004 the ANC received a larger majority than when Nelson Mandela had led the party in the elections of 1994.

Rejected pragmatism

You will notice that I have thus far restricted myself to events up until 2007 and have said nothing, as yet, about more recent developments. In December of 2007, the ANC held a conference at which it elected a new set of leaders. To the surprise of many, although not analysts at the IRR, Mr Thabo Mbeki, who had served as leader of the ANC as well as president of South Africa, and who had been central to the economic policy making of the party and the government, was dethroned as ANC leader. This later forced his resignation as president of South Africa.

In dispensing with Mr Mbeki, the ANC dispensed with more than the man. It also rejected much of the pragmatism of his economic policies. The South African Communist Party and the Congress of South African Trade Unions, both of which had been central to the axing of Mr Mbeki, became increasingly prominent in policy making. Following the 2009 national election, a number of key economic portfolios in the cabinet were in the hands of leftists and communists. They quickly set about dismantling the policy infrastructure of the 1994-2007 era and replaced it with a concept they called ‘the developmental state’. Leaks from cabinet meetings suggest that animated ideological debates took place about what such a state would entail – mostly concluding with ideological dogma about nationalisation and state direction of the economy.

Policy soon began to reflect that dogma. Proposals were made to nationalise mines and banks. A cabinet minister spoke of the need to destroy the capitalist system. A deputy minister accused foreign investors of looting the country. Another member of the cabinet proposed putting a ceiling on all private sector management salaries until economic equality had been attained (he seemed oblivious to the consequences for tax revenue). Labour laws were tightened. Firms that failed to meet with the state-driven racial targets were publicly shamed.

It was proposed that the private security industry be nationalised. Proposals were made to nationalise all land in private hands. An antagonistic line was adopted towards western capitals. Chavez in Venezuela, Castro in Cuba (as recently as this month) and Mugabe in Zimbabwe were hailed as role-models to be emulated.

That this shift in policy coincided with the global financial crisis and growing risk aversion to emerging markets greatly exacerbated its impact. At a time of heightened global investor concern, South Africa was sending out the message that it did not value investment and would not protect the rights of investors – foreign or domestic. South Africa’s economic position was then further worsened by the pull-back in global commodity prices.

A fund manager put it to us during a briefing we delivered that the slurping sound the world was hearing was the draining of the commodity pool and that the world would soon learn which commodity producers had been ‘wearing pants’. South Africa’s trade deficit numbers soon showed that it had not been wearing pants.

The country now runs a significant trade deficit with almost every major country and region of world. The United States, because of the generosity of the African Growth and Opportunity Act (AGOA), is not one of those countries – even though the post-2007 South African government went out of its way to place that agreement in jeopardy.

South Africa’s weak trade performance and particular vulnerability to commodity prices comes as no surprise. Data shows that the majority of its export products are dug out of the ground. The manufacturing economy’s share of GDP is half of what it was in 1994, despite the weakening of the real effective exchange rate.

END OF PART 1

*Frans Cronje is a scenario planner and CEO of the IRR, a think-tank that promotes political and economic freedom.

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